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Policy Brief—Minnesota Wage Subsidy Program

Labor Market Situation

Working people throughout Minnesota are experiencing a decade-long job loss crisis. According to seasonally adjusted figures from Minnesota DEED's Current Employment Statistics, in the decade of 1991 through 2000, Minnesota net gained an average of 55,790 jobs per year. But in the decade of 2001 through 2010, the state net lost an average of 5,240 jobs per year.

According to DEED figures for the second quarter of 2012, with about 160,000 Minnesota job seekers competing for 63,000 job openings, job seekers outnumber openings by more than 2-to-1. And only about 38,000 of these job openings are full-time, meaning that job seekers outnumber full-time openings by 4-to-1.

There is an ongoing need for collaborative strategies to help Minnesota's private and public sectors create jobs that pay family-supporting wages. We must ensure that these strategies help Greater Minnesota as well as the Metro region, and support any demographic groups suffering inordinate job loss or wage loss, including women and people of color.

Policy Solution

Minnesota must generate jobs for our workforce. And the state's small employers need capital to hire and expand. One proven solution to support economic growth and higher employment is a wage subsidy program, administered through the Workforce Service Areas. From 1983 to 1987 the Minnesota Emergency Employment Development or MEED program put 7,400 people to work in its first six months and more than 42,000 in three years. A smaller program, the $1.5 million Iron Range Resources Wage Subsidy Program, currently is operating through the Workforce Centers in Northeast Minnesota. Recent proposals to relaunch the statewide program are known alternatively as MEED (see for example HF1326, introduced in the Minnesota legislature in 2009) or as the Minnesota Emergency Jobs Act (MEJA).

The statewide wage subsidy program would provide capital to small employers to hire disadvantaged or long-term unemployed workers, thus helping businesses to expand and workers to gain skills and experience. The majority of jobs would be in the private for-profit sector, with some jobs in the public and private non-profit sectors.

At an estimated cost of $35,000 per job (in 2011 dollars), the program would cost far less than generic tax cuts and compares well with the cost of job creation tax credits. A state allocation of $100 million per year for MEED would provide for the creation of 2,857 new jobs per year. A larger allocation would generate more jobs and give a greater boost to Minnesota's economy. At least 75 percent of funds would be spent on direct wage subsidies to employers, at least 5 percent on training, and the remainder on program operation and worker supportive services.

The MEED program becomes increasingly cost-effective over time as a result of increased economic activity and increased state revenue, especially from year three onward. As a result, the cost per job would decrease 60 percent by the 10th year of the program, according to research by economist Timothy Bartik of the Upjohn Institute. A 1989 state economic analysis report estimated the ten-year return on investment for the 1980s MEED program was 11.9 percent per year.

Local workforce agencies would identify eligible workers and match them to eligible employers. Jobs would pay a living wage. During the 1980s MEED program, participating private sector employers paid their MEED employees an average of $10.28 an hour in 2011 dollars during the subsidy period and voluntarily raised wages after the subsidy. Jobs also would provide benefits or, in the nonprofit sector, a no-wait waiver for MinnesotaCare.

All jobs would be new jobs, not displacing other workers, and a union sign-off would be required if a collective bargaining unit is involved. In the private sector, a share of the employee's wages, up to a specified maximum, would be subsidized for six months. In the public and non-profit sector, 100 percent of the wages, up to a specified maximum, would be subsidized for six months.

For-profit employers would be required to keep the employee on payroll without subsidy for at least six months after the end of the subsidy period. If an employee is not a good fit, an employer could let go of that employee and fill the vacancy with another eligible program applicant. Jobs in the non-profit and public sector would last at least as long as the subsidy.

In the for-profit sector, employer priority would be given to independent businesses which 1. meet the definition of a small business as defined in Minnesota statutes section 645.445, 2. have their primary place of business in Minnesota, 3. have potential for growth and long-term job creation, 4. make high use of Minnesota local resources, 5. are owned by women or minorities.

The application and reporting requirements for participating employers would be made as simple as possible, while still maintaining the program's efficacy, integrity, and assessibility, so that paperwork will not pose an undue obstacle to small employers. Ninety-two percent of private employers responding to JOBS NOW's "MEED Means Business" survey in 1984 reported MEED let them fill jobs with a minimum of red tape.

Employee priority would be given to Minnesota residents who are are eligible for Unemployment Insurance, General Assistance, or the Minnesota Family Investment Program, or who are Armed Services veterans. A considerable proportion of women and people of color could be expected to meet these criteria. Government and participating employers would be required to report the impact of the program on employment levels of participants by age, ethnicity, gender, and geographic region to allow effective assessment of program performance.

A Minnesota emergency wage subsidy program can be enacted by the Minnesota legislature.

Further resources

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